Hungary’s Government Scales Back 2012 Growth Estimate

By Zoltan Simon -
Feb 20, 2012

Hungary’s government is scaling back
its projection for economic growth this year, maintaining that
the country will probably avoid a recession, said Mihaly Varga,
Prime Minister Viktor Orban’s chief of staff.

“The Hungarian government is today counting with 0 percent
to 0.5 percent growth,” Varga said. “Based on the data on hand
one can say that the Hungarian economy can stay above zero.”

The International Monetary Fund is reviewing its 0.3
percent GDP growth forecast for 2012 and may reduce the estimate
because of the euro area’s deteriorating outlook, Iryna
Ivaschenko, the lender’s representative in Budapest, said Feb.
9. A growth outlook of 0.5 percent may be “acceptable” to the
IMF, the European Union and economists, Varga said.

Hungary is seeking to revive bailout talks with the IMF and
the EU to quell investor concern about its ability to service
the highest debt level among the trading bloc’s eastern members.
It sought aid in November after the forint fell to a record low
and its credit grade was cut to junk at Standard & Poor’s,
Moody’s Investors Service and Fitch Ratings.

‘More or Less Ensured’

Public debt financing for this year is “more or less
ensured,” Varga said. The stabilization of the forint, the
world’s best-performing currency this year after being the
worst-performer in the second half of 2011, may cut the debt
level to as low as 75 percent of GDP from 80.3 percent at the
end of last year, Varga said.

The forint lost 16 percent against the euro in the second
half last year and has strengthened 9.3 percent since Jan. 1.
The forint traded 0.6 percent higher at 288.27 per euro at 9:00
a.m. in Budapest.

Hungary can’t begin formal talks on an aid package until it
meets EU and IMF demands to change a disputed central bank
regulation, which led to the suspension of talks in December.
The 27-member bloc also requested changes to overhauls of the
judiciary and data-protection office.

Hungary, in a reply sent to the European Commission on Feb.
17, accepted the majority of the EU’s demands and made
“constructive recommendations” to address issues on which
differences remained, including on the reduction of the
retirement age for judges, Foreign Minister Janos Martonyi told
HirTV in a separate interview late yesterday.

‘Deep Differences’

Hungary may take “several weeks” to meet EU and IMF
preconditions to start talks, London-based Barclays Capital
economists Daniel Hewitt and Piotr Chwiejczak wrote in a report
today after visiting Budapest. A loan agreement may be reached
in June or later, they said, citing “deep differences” that
need to be bridged on fiscal policy.

“We expect negotiations to start in the second half of
March and to not be completed until May,” Hewitt and Chwiejczak
wrote. “Then the government would have to implement prior
actions before the IMF board meeting could take place.
Optimistically, this could happen in June, although we think
there is more downside risk to this timing than upside risk.”

Barclays Capital maintains its “underweight” position on
Hungarian debt because of the impact on credit should Hungary
experience “serious external financing problems without IMF
disbursements.”

2011 Growth

Economic output rose 1.4 percent in the fourth quarter from
a year earlier, the statistics office in Budapest said in a
preliminary estimate on Feb. 15, as rising agricultural
production helped growth. The economy grew 1.7 percent in 2011
from the previous year.

Industrial production, including exports of Audi AG cars
and Nokia Oyj (NOK1V) mobile phones assembled in the country, helped
Hungary recover from its worst recession in 18 years in 2009.
Nokia’s announcement on Feb. 8 that it will cut 2,300 jobs in
Hungary will have a “negative” impact on first-quarter growth,
statistician Peter Szabo told reporters on Feb. 15.

Hungary can this year maintain its agriculture output
level, which boosted growth last year, Roland Natran, deputy
state secretary at the Economy Ministry, told MR 1 radio on Feb.
17. “Significant” investments currently under way will also
help maintain the contribution of manufacturing to economic
growth, Natran said.

Daimler AG (DAI) will start production of its new B-Class model
at its plant in Hungary at the end of March, Nepszabadsag
reported on Feb. 13, without citing anyone. Test production is
already under way in the central city of Kecskemet, the
newspaper said.